Hog industry continues to go corporate

The banks are going to have to take a haircut and some grain suppliers won't be able to collect on some receivables but it looks as if Puratone Corp.'s significant Manitoba hog production operations will survive to fatten up another day under the ownership of Maple Leaf Foods.

Last week, Maple Leaf announced it has a definitive agreement to acquire most of the assets of Puratone for $42 million.

Puratone filed for bankruptcy protection in the middle of September and its latest court filing lists total liabilities of about $118.7 million, including $86.1 million in secured debt to the Bank of Montreal and the Farm Credit Corp.

Puratone's court filing had been preceded by the receivership of Saskatchewan's Big Sky Farms, knocking the Prairie hog production industry into chaos.

It was a rude awakening for an industry that continues to be rocked with huge losses due to high feed prices and low hog prices.

Those conditions do not change.

What does change is the business now becomes more corporatized.

Maple Leaf Foods was the largest hog producer in the province even before the Puratone acquisition (which still needs approval from the court and Competition Bureau before it can close, likely some time in mid-December). Its Maple Leaf Agri-Farms already produces close to 800,000 hogs per year in Manitoba.

"This deal allows us to secure reliable hog supply for our processing operation in Brandon," said Dave Bauer, a spokesman for MLF.

Manitoba has become the largest hog-producing province in the country not just because the landscape is amenable to the hogs' disposition, but because the largest pork processing facility in the country -- and one of the largest in North America -- is in Brandon.

Some two-thirds of Puratone's production -- about 300,000 pigs per year -- were bought by Maple Leaf for its processing plant.

Maple Leaf goes through more than four millions hogs per year at its Brandon plant.

Andrew Dickson, the general manager of the Manitoba Pork Council, does not mince words in explaining the significance of that plant to the province's hog production industry.

"We need Maple Leaf to be making money out of the plant in Brandon," he said. "If they lose money they will close it down. If that happens the whole pig industry dies tomorrow except for HyLife."

HyLife Foods operates a successful, but much smaller, pork processing plant in Neepawa.

Maple Leaf's deal to buy Puratone includes an agreement to employ all of Puratone's approximately 300 employees.

They include the people who work at the Puratone-owned feeder barns. Some of those employees were once independent producers who chose to take a regular pay cheque instead of suffering under the vicissitudes of the market. It has been estimated that market will extract about $150 million in losses from producers this year and next.

Dickson and others say that transition -- from independent producer to employee or contracted producer -- is quickening.

"This is a way of staying in the farming business and getting a half-decent livelihood out of it," Dickson said. "It is expensive to own land nowadays. It is hard to do farming independently anymore."

The number of small family farms is diminishing constantly.

That's not to say Maple Leaf Foods will not be a proper steward of the industry. As well, it will have to survive on the same global pig and feed grain prices that independent producers have to deal with.

But its demand imperative to feed its massive plant in Brandon that employs more than 2,000 people is significant.

In fact, the Puratone acquisition may not be its last.

Quebec-based Olymel has offered $65.25 million to buy Big Sky Farms out of receivership. But the bidding process for the Humboldt, Sask.-based company, which is larger than Puratone, is still open until the end of the week.

On the subject of Big Sky, Maple Leaf Foods' Bauer said, "We are watching the situation closely and evaluating a number of options."

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